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Cigarette tax: Can the state afford fewer smokers?
by Bianca Vazquez Toness, Minnesota Public Radio
July 12, 2005

Carol Reins smokes a pack of cigarettes a day. The new tax, which will bring the cost of her cigarettes to $4 a pack, may be the best reason she has had to quit yet. (MPR Photo/Bianca Vazquez Toness)

The proposed 75-cent-per-pack increase in the cigarette tax helped break the budget impasse at the state Capitol. But smokers are unhappy about the higher costs they'll face. Some experts say the higher tax may eventually lead to lower tax collections -- since it may encourage more people to quit smoking.

St. Paul, Minn. —
The tobacco tax would add 75 cents to the cost of a pack of cigarettes, and would double the tax on other tobacco products to 70 percent of the cost.

Carol Reins smokes a pack of cigarettes a day. She buys her daily pack of Marlboro Lights for $3.20 at a St. Paul discount tobacco shop.

Outside the store, she looks at her cigarettes and says she's been trying to quit. The new tax, which will bring the cost of her cigarettes to $4 a pack, may be the best reason she has had yet.

"That's money that I don't have," she says. "And my health is affected, my pocketboook is affected. And I'm going to miss it. But my lungs won't and neither will my heart."

Reins is a perfect example of what anti-smoking advocates want -- to dissuade people from smoking.

Matt Flory of the American Cancer Society says the new tax would either stop or prevent 40,000 Minnesotans from smoking.

"We're very confident that this will prevent smoking. And if we reduce smoking we'll reduce tobacco related diseases, which will reduce health care costs," he says.

But what makes it a good public health policy, may make the tax a bad source of revenue.

Because I have a habit and an addiction to cigarettes, what it means is I'll probably buy less food or less medicine.

- Marilyn Mixx

Matt Gardner, who analyzes state tax policy for the Institute of Taxation and Economic Policy, agrees that taxing cigarettes is a good way to change smokers' behavior, if that's the state's goal.

But Gardner says it works at cross purposes with raising revenues. He says although Gov. Pawlenty's office adjusted the estimated revenue, it still won't live up to expectations.

"People are going to start buying their cigarettes in other ways that allow them to avoid the tax. Maybe that means buying them in Illinois or Wisconsin," says Gardner. "Maybe that means buying them over the Internet. It does mean buying them in a way that prevents cigarette tax from going to the state of Minnesota."

In the end, Gardiner says revenue from cigarettes will be unreliable. But there's another reason he doesn't like cigarette taxes.

"If you look at all the taxes that state and local governments could chose, the cigarette tax is probably the most unfair," he says.

A study by Gardner's group found that the poorest Americans spent a far greater share of their incomes on taxes than the wealthy.

"If you buy a carton of cigarettes and it costs $20, the tax on that carton of cigarettes is going to be the same amount no matter how much you earn. But that tax is going to be more burdensome as a percentage of your income ... for low-income taxpayers than it's going to be for wealthier taxpayers," says Gardner.

Marilyn Mixx's only source of income is a monthly Social Security check for $579. She already spends about $130 per month on cigarettes. The new tax would add $30 to $40 to the cost of her cigarette habit, pushing it to more than one-quarter of her monthly budget.

The St. Paul woman says she doesn't think she'll stop smoking. Instead, she says she'll have to make other changes in her budget to make up for the increased cost of her cigarettes.

"Because I have a habit and an addiction to cigarettes, what it means is I'll probably buy less food or less medicine," she says.

If lawmakers don't want Marilyn Mixx to readjust her budget, they need to figure out how to readjust theirs.
Without the tobacco tax, the entire tentative budget agreement falls apart. That would send legislative leaders back to the beginning, and could shut down parts of state government again.